US Dollar Index Is Failing at the 80 Resistance Level, and Should Be Sold

The New Year is not looking pretty for the US Dollar Index.

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MINYANVILLE ORIGINAL I know it has been a while since I provided an update on the currency market, but outside of the Japanese yen, there has not been much to highlight. After a tough trading environment in 2012, it is nice to have a clean slate to start 2013, so let's see where we might have some immediate trading opportunities.

The US Dollar Index looks like a screaming short to me to start off the New Year, which hopefully should bode well for risk assets and a strong January for equities. As you can see in the two-year chart below, the US Dollar Index is basically forming a large head-and-shoulders topping pattern. For over a year, the DX has not been able to rally past the low 80s; now it looks like that 80 mark should be significant resistance going forward in 2013.

The 50-day and 200-day moving averages will provide a good backstop to short the DX with a tight stop closing above 81. The longer-term pattern projects downside to the 74 level, so with the DX trading just shy of 80, the risk reward of a short position is pretty compelling here. A break below the 79 level would confirm this pattern, and this might be one of the most important charts to keep an eye on as we start 2013.

Good luck out there and best wishes for a happy, healthy, and prosperous 2013!

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